A securities class action was recently filed against ITT Educational Services, Inc. and certain officers.
ITT Educational Services is a for-profit educator that provides postsecondary degrees and other programs. The company offers both undergraduate and graduate level degree programs.
Securities class action filing
Pomerantz LLP announced on Oct. 9, 2014, that it had brought forth the legal action to represent all organizations and individuals who bought the for-profit educator's securities between April 26, 2013 and Sept. 19, 2014. These dates are inclusive, and constitute the class period.
The law firm filed the suit in the United States District Court, Southern District of Indiana, Indianapolis Division, in an attempt to recover damages stemming from alleged breaches of federal securities laws contained within the Securities Exchange Act of 1934.
Class action claims
The securities class action involved allegations that during the class period, defendants failed to disclose material facts, as well as made false and or misleading statements, about ITT Educational's operations, business and prospects.
Rosen Law Firm suit
It is worth noting that The Rosen Law Firm, P.A. filed a separate lawsuit, which involved the same class period and also claimed the for-profit educator failed to disclose key matters, and also made statements that were false and or misleading. The securities class action brought forth by Rosen was different in that it was filed to represent purchasers of the company's common stock.
The suits filed by the Rosen Law Firm and Pomerantz alleged the failures to disclose key information – and statements that were materially false and or misleading – did not reveal that the company had made errors in the accounting for certain programs.
More specifically, the securities class action filed by The Rosen Law Firm claimed that ITT Educational did not have sufficient internal controls over financial reporting, that the company's financial statements included errors related to the accounting of the organization's PEAKS Trust and PEAKS Program, and that as a result of the aforementioned, the firm's financial statements were materially false and misleading at all relevant times.
Key disclosures
The for-profit educator announced on March 21, 2014, that it had been sent an inquiry by the U.S. Securities and Exchange Commission's Office of the Chief Accountant related to the firm's accounting treatment for the variable interest entity in the PEAKS Program. Company shares subsequently fell $2.24 to close at $27.71 each on March 24, 2014.
Then, on May 22, 2014, IT Educational announced it was retracting its financial forecast for the year. In addition, the firm informed investors that due to accounting uncertainties involved the PEAKS private student loan program, they should no longer depend on the prediction.
The Pomerantz suit claimed that amid this news, company shares declined $5.30 to close at $20.50 per share on May 22, 2014. On Sept. 19, ITT Educational announced it had been informed by the SEC's Division of Enforcement that the division had made a preliminary determination to recommend the government agency bring forth an enforcement action against the for-profit educator alleging the company breached several provisions of both the Exchange Act and the Securities Exchange Act.
The impetus for the potential enforcement action was the previously disclosed SEC investigation involving ITT Educational's private student loan programs. On Sept. 19, 2014, shares of the for-profit educator dropped $2.70 to close at $4.95 apiece.
At the close of trading on Sept. 19, 2014, company shares were down 85 percent for 2014, according to Bloomberg.